The purpose of this course is to help individuals and organizations survive when confronted with disruptive technologies that threaten their current way of life. We will look at a general model of survival and use it to analyze companies and industries that have failed or are close to failing. Examples of companies that have not survived include Kodak, a firm over 100 years old, Blockbuster and Borders. It is likely that each of us has done business with all of these firms, and today Kodak and Blockbuster are in bankruptcy and Borders has been liquidated. Disruptions are impacting industries like education; Coursera and others offering these massive open online courses are a challenge for Universities. In addition to firms that have failed, we will look at some that have survived and are doing well. What are their strategies for survival?
By highlighting the reasons for the decline of firms and industries, participants can begin to understand how to keep the same thing from happening to them. Through the study of successful organizations, we will try to tease out approaches to disruptions that actually work. Our ultimate objective is to develop a strategy for survival in a world confronting one disruptive technology after another.

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Hank C. Lucas

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Good morning Frankie. We talked about what a nice life you have with a heated and air conditioned roof over your head, nice long walks. Two square meals a day, which is all you're supposed to have. And the ability to nap anyplace and anytime you want to. However one of the things you can't do, one of the drawbacks of being a dog is you can't read and reading is one of the great pleasures that humans have and these things called bookstores, of which Borders is one, existed to help provide us, with some of the things we like to read. This is a story of Borders, as it came and as it left. Borders became and international chain. Here is a Singapore store. It was started in 1971 in Ann Arbor, Michigan by, surprisingly, the Border brothers. They tailored their offerings to each community they were in . So they stocked the stores with material that would appear to that demographic. This is a store in Ann Arbor. Kmart acquired Borders in 1992, and combined it with its Walden Book subsidiary. Walden Books were a, a, a set of smaller stores in shopping malls around the country. Borders, as you can see here, tended to have large, sort of, superstores with many many books in them. As often happens when a company is acquired, Borders senior management left after the acquisition. Later on Kmart decided that it wasn't such a great idea and spun off Borders which does create a little bit of management turmoil. Well, then there was a long road downhill after all of this. By 2003, Borders had over 1200 Borders or Waldenbooks stores. 2004 they had an agreement with Starbucks, Seattle's Best is one of Starbucks brands, to open cafes and stores. I remember our local mall that had a Borders, a very large Borders, the second floor had a cafe, easy chairs, you get a cup of coffee or a cup of tea sit down in one of the easy chairs and browse books. A really pleasant way to spend an hour or so. Unfortunately with online that model has disappeared for the most part. by 2007, it was necessary to close half of the Waldenbooks stores. In 2008, it opened 14 concept stores with digital center offering devices and a Borders rewards program, which is sort of like a frequent readers program. By 2001 Borders had tried to do something online but it was struggling and so it outsourced to Amazon and that's kind of an interesting decision to make. Amazon was probably the premier company in running e-commerce websites for other companies, so they actually ran them for their competitors. Amazon also ran websites for Companies like Toys-R-Us that, that had trouble mastering the technology. Amazon would do the website alone or they would actually do the fulfillment. They would stock the merchandise in Amazon warehouses. To the customer it would look as if Toys-R-Us was the one taking the order and shipping it but it was actually Amazon behind the scenes. But what happens when you do this is you very quickly get your website up because the software is there, the infrastructure is there, and in just a very short period of time, you can be in business with a website. And when you do this, when you turn that over into another company, it really was a long-term disaster because you never learn The technology. You never learn how to operated in this new kind of internet world. Borders last profit was 2006, its income dropped steadily over the next four years. And so, the end had to come. In 2008, Borders annouced its intention to sell the chain. It had a high debt load and had to borrow $42 million dollars. And believe me, 12 and a half percent is a pretty steep interest rate. In 2008 it also created Borders Personal Publishing for authors to publish through its website. This is a really nice service. It's another example of disruption. This one's disrupting publishers. We'll talk about that later on. But it's really not a source of. High profits, at least at first. Okay. Unless you get some really great authors who are selling many, many copies of their books that are self published. It's stock dropped finally again down to 53 cents a share in 2009. they tried extensive changes in the board of directors and senior management, but I think it was all over at this point. However, they kept on going. In 2010 they opened an e-books store for books to be downloaded to an e-reader device using a Borders app so you could download it to a desktop, an iPad, Blackberry or Android. But notice, where is the e-reader from Borders? You have the Kindle from Amazon, you have the Nook from Barnes and Noble and you didn't have anything except a generic app or series of apps from Borders. February 16th, 2011, Borders filed for bankruptcy, creditors rejected a takeover bid. When you're in bankruptcy and you have a plan to exit, the creditors have to agree to it. A company wanted to buy them, but the creditors didn't think the deal was good enough for them. I'm not sure that, that was a great decision, because them Borders filed for an auction. But it's kind of sad that there was no bidder. No one wanted to buy Borders. July 22nd, they started closing stores. 39 of them were left at that point. 17,000 employees lost their jobs. So, what do you think went wrong? Why don't you tell us in the quiz, and we'll take just a moment for that. I think there was a total lack of response from Borders management. It failed to appreciate the disruption that online bookstores would have on physical stores. And the question here is why? Amazon announced its plans to sell books online well in advance of opening its first website. Bezos, the head of Amazon, was not shy. He wanted the publicity. He wanted the buzz about his business. Borders had resources. They were a going concern. They had capital. They could have developed a website. Even on an experimental basis. Maybe put one type of book on that website. Try it and see what happens. If you don't have the competence in house to do this, hire a consulting firm and let them build your website for you. Maybe a consulting firm other than Amazon. there was time for Borders to set up a competing online store And to experiment. Was management denying, as we've seen in other cases, that the internet would have an impact on its business? Borders did try its own online store but it couldn't execute. Now where have we seen this before? Lot, and lots of places, so it had to outsource. It was late to the e-reader game and never really developed an e-reader. It was late to the self-publishing game. So, one could say that what we're looking at is a response that was too little, too late. Manangement failed to recognize every new disruptive technolgy that came along. It never was a leader. So it ended up as, we have seen in other examples, taking the third path of our disruptive technologies model. Not morphing the business, not adopting the new business model. But in fact failure and liquidation. Managers didn't understand the likely impact of technology, they couldn't respond. And when they tried to respond, their efforts were not successful. And now there is no more Borders. There's still a strong demand for books, but consumers want to purchase them in a different way. Just as Kodak thought it could tell customers how to take pictures, Borders may have felt that it could tell customers how to buy books and how to read them. And that's just not going to work in today's economy. Consumers may want to use a different medium then what has been historically the case. I did both, okay? I'd, I'm not dedicated to one or the other. I read books that are physical, on paper and, and print and I read books on a Kindle. I think the Kindle is absolutely great when I'm travelling because I can take 20 books on a Kindle and not have to load up my luggage with books when I'm going on vacation some place. If Borders had the vision to see how the industry was changing, and the skills to respond, it might still be here. But we could probably say that about a number of companies that have failed. So, in the end, there is no more Borders. There are employees who no longer have jobs. And a source of content for all of us who like to read, has disappeared.